1.0 Introduction

Foreign direct investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country which receives the investment, it can provide a source of new technology, capital, processes, organizational technologies, management skills and as such can provide a strong impetus to economic development.

Foreign direct investment, in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the acquisition of a lasting management interest in a company or enterprise outside the investing firm’s home country.

We have chosen tourism sector to evaluate the FDI’s flow and importance during the past two years. Apart from that, we analysed the impairing factors to FDI’s in torism sector and finally we pointed out some suggestions that should be taken by the government so as to attract more FDI’s.

1. Historical Background

Tourism is an increasingly important sector of economic activity worldwide, and is becoming one of the most promising sources of economic growth and human development in the United Republic of Tanzania. The United Republic of Tanzania, only began to develop international tourism in earnest over the past 15 years.

Between 1985 and 1990, government began to reform the economy, liberalizing economic activity, allowing private businesses and privatizing state enterprises. Tanzania also adopted a more open foreign investment policy, allowing foreign ownership and according full protection of property rights, thereby creating a favourable environment for attracting foreign direct investment (FDI). Among the initiatives taken to attract FDI was the establishment of the Tanzania Investment Sector (TIC).

A new focus on tourism on tourism promotion and facilitation included the development of tourism policies and master plans. As a result, FDI in tourism began to grow, including the establishment of foreign-owned and operated hotels and tour operators,and the industry became a leading recipient of FDI.

2. Importance of FDI in Tourism
FDI in tourism brought about the following positive impacts; ▪ Employment The tourism sector is believed to have significant direct and indirect employment effects because of its extensive linkages with other sectors. The number of employees in the tourism sector has been increasing consistently since 1991, following a similar trend in the number of international visitors and earnings. Direct employment increased from 575,287 jobs in 2009 to 624,000 jobs in 2010 marking a level of 6.3% of total employment or 1 in every 15.8 jobs.

Although the level of employment appears to have been increasing over time, it has fluctuated markedly between the high and low seasons, particularly for casual or temporary employees.

▪ Tax Revenue Wholly foreign-owned hotels and tour operators accounted for over 71 percent of the total tax revenue from tourism (table 1). Overall firms (local or foreign) did not consider tax rates to be excessively high. Rather, it was the administrative bureacracy and tax collection that was viewed negatively, especially by foreign enterprises.

Table 1. Tax revenue for firms (US $)
|Establishment |Local |Foreign |Total |% share of tax revenue |
|Hotels |163,800 |427,200 |591,000 |72.3 |
|Tour operators |93,896 |232,434 |326,330 |71.2 |
|Total |257,696 |659,634 |917,330 |71.9 |

▪ Technology and Skills The application of knowledge, skills and innovation in tourism business is key to success. All hotels and tour operators provide intensive training to all their staff-skilled and unskilled. Three reasons are cited. Firstly, tourism-related skills of the local staff are inadequate and need upgrading. Second, each firm has goals, plans and strategies that each staff member needed to know about and understand so that all personnel work as a team for realizing objectives. Third, few workers had received the necessary training in customer service.

The following are the main areas and staff levels for which training is provided: ➢ Training and retraining of existing managerial staff. ➢ Training of middle management in supervisory skills for the different hotel services. ➢ Retraining of existing staff to improve attitudes, customer relations and services. ➢ Skills development for line staff, such as front office, kitchen, bar, guides and the travel trade. ➢ Marketing techniques ➢ Language training, especially french, spanish and english. ➢ Computer training and software applications.

▪ Tour Operations According to data from the Ministry of Natural Resources and Tourism, there were 179 licnsed tour operators in Tanzania as on December 2010. Most of these operators (about 128) were located in Arusha, close to th northern circuit wildlife attractions, and 36 og the 43 travel agencies were located in the capital city, Dar-es-Salaam.

▪ Accomodation FDI in Tanzania’s accomodation base increased by 85 percent fromUS $ 280 million in 2009 to US$ 518 million in 2010. According to the National Bureau of Statistics, the investment facilitated an increase of 32.5 percent in tourist hotels, from 321 in 2009 to 476 in 2010. In terms of ownership, about 71 percent were locally owned, 22 percent were foreign-owned and 7 percent were joint ventures.

▪ Earnings The tourism industry is one of the main sources of foreign exchange earnings in Tanzania. However, the performance of the tourism sector in 2009 was not satisfactory mainly due to the global financial crisis. Tourist earnings increased from US $ 1,159.8 million in 2009 to about US $ 1,759.5 million in 2010.

3. Impairing Factors to FDI in Tourism sector ❖ Inadequate physical infrastructure for FDI tourism Tanzania’s physical infrastructure is inadequate to support the rapidly growing FDI in tourism. The problems are related to poor infrastructure (e.g. roads and rail network, electricity and water supply), including the airport infrastructure.

❖ High utility costs and value-added tax (VAT) Firms observed that telecommunication costs, electricity and water tariffs are very high compared with other countries in the region. The VAT rate of 18 percent was also perceivedas being too high. Tanzania is taking measures to rectify the situation by reducing import tariffs on information and telecommunicationequipment to facilitate access and maximize the advantages of information and communication technologies (ICT) in economic development.

❖ Inadequately trained labour Labour factors, including an inadequately trained labour force, and an increasing incidence of HIV/AIDS are considered major constraints that discouraged investors in the tourism sector. Some tourist operators cited inadequately trained manpower and unsatisfactory work ethics as undermining the efficiency of their services.

4. Recommendations
The following recommendations should be considered by the government so as to attract more FDI’s in the tourism sector; • Improving Infrastructure Major efforts are required to improve infrastructure, particularly roads, airports, rail network and telecommunications, inorder to enhance sustainability. Utilities such as water and electricity require improvement, both in terms of regularity and stability of supply.

Due to their inadequate provision, investors have had to install their own facilities, such as back-up generators, which is costly bothfrom a capital perspective as well as operationally, as it increases the cost of doing business.

• Providing training for capacity building A lack of adequately skilled manpower hampers efficient business performance and necessitates undue and costly employment of foreign experts in the tourism sector. There is a need to improve tourism training institutes through curriculum reform and better training techniques, and to foster on-the-job training by foreign-owned establishments.

• Developing the southern circuit and other tourism products The northern circuit is becoming over exploited and there is a growing concern over the environmental effects. In order to relieve the pressure on the northern circuit, it is necessary to develop the southern circuit (e.g. Selous, Ruaha and Udzungwa national parks) as well as promoting coastal tourism products.

• There is a need for diversifying our tourists products from relying heavily on wildlife tourism to opting for other products such as eco-tourism, cultural tourism and beach or marine-based torism in order to prolong the length of stay and increase tourism earnings.

• There is a need for intensifying our promotional efforts in order to establish new source markets in Eastern Asia, Middle East and Eastern Europe. This should go in tandem with diversification of the tourist products in order to encourage repeated visits.

REFERENCES 1. UNCTAD (2010), The role of FDI in Tanzania tourism, Working Paper, Investment Issues Analysis Branch, UNCTAD, Geneva. 2. Bank of Tanzania (BOT) (2010), Tanzania Tourism Sector Survey Report, December, Dar-es-Salaam. 3. Ministry of Natural Resources and Tourism and National Bureau of Statistics websites.